Microsoft ( MSFT) aims to blow away Sony ( SNE) in the video console universe with the new Xbox 360, scheduled to land on store shelves Tuesday. But it'll take more than the largest consumer launch inMicrosoft's history -- which will include a Burning Man-style gamers' mecca inthe Mojave desert -- to succeed. Despite all of the build-up, industryobservers doubt that the world's largest software maker will be able to take down the second-largest electronics maker in thislatest clash of the titans. "For me, there is no doubt that Play Station 3 will be the clearwinner, hands-down, even in this next generation," says James Lin,managing partner of Los Angeles-based video game consultancy SimbaGroup. ( TheStreet.com this week also looked at how Microsoft's
rivals will weather the ballyhooed rollout; how far Microsoft will make it into consumers' living rooms; what all the new game machines mean for investors; and what a game is worth.) However, that doesn't mean Microsoft won't reap rewards. Lin, a former analyst, says, "There's no question that Xbox 360 will likely do better than the Xbox 1." A main reason is that Microsoft has had a lot more time to strategize this time around. The company has been planning Xbox 360 since theoriginal Xbox launched in 2001. Microsoft has used that time tocreate a sleeker box and put more thought into hardware specs, saysDavid Reid, director of marketing for Xbox. "We feel like we can win this generation," he says. "We feel like we'revery much on par -- and we're out there earlier." Further adding to the Xbox 360 buzz are expectations of shortages, sinceMicrosoft has said it won't immediately flood retailers with supply but will instead use a "rapid replenishment program" to provide steady inventory. The strategy has prompted speculation about productionconstraints -- or Microsoft trying to make itself look better. "I wouldsay either way it's brilliant marketing," quips Wedbush Morgan videogame analyst Michael Pachter.
"It seems like Play Station 3 will launch in June and that will bethe end of Xbox," says Jane Snorek, a senior analyst who coverstechnology at U.S. Bancorp Asset Management. However, "I don't really think itwill affect the stock price
of Microsoft much. That's not why you buy Microsoft." Her firm's $30 billion in equities is underweight Microsoft. While Snorek is one of the more pessimistic observers, othersbelieve some impatient Sony fans may give in and buy an Xbox 360 whilethey wait for Play Station 3. " Microsoft has a good shot at pulling even," says P.J. McNealy,an analyst who covers video games for American Technology Research."Part of it is it's coming out earlier. It would be a different scenario if they were both launching this holiday."
"It just underscores some of the sentiment that we've seen outthere," Lin says. "The publishers will not come out and ignore the360,
but you really have to look whether they'll be designingexclusive content aimed at the Xbox 360 target audience." Winning exclusive third-party games is a real measure of successbecause it shows publishers are betting Xbox 360 will be such a bighit that they can initially forgo sales on rival consoles. Not surprisingly, the hottest game exclusively for the original Xbox, Halo 2,was developed by Microsoft itself. The game was such a blockbuster atlaunch that it helped Microsoft's home and entertainment division postits first profitable quarter. But outside of the Halo franchise, Microsoft's in-house games havesuffered from mixed reviews. "They had a couple of phenomenalsuccesses and a bunch of very poor performances," Pachter says ofMicrosoft's in-house games. On the other hand, "Sony's first-party capacity is about 10 timeswhat Microsoft's is," he adds. And "Sony has the Japanese boy's club" of developers, who Pachter expects will still throw more weight behind Sony than Microsoft. Microsoft is remaining tight-lipped about its timeline forreleasing Halo 3. But Chairman and Co-Founder Bill Gates has suggestedtiming it to coincide with Play Station 3's launch would be perfect. Such a move would steal some thunder from Sony and take the next-generation battle up to another level, while bringing Microsoft that much closer to accomplishing itsconquest in this next-generation console battle.